Judo Strategy and CPEC

In a piece titled ‘Catching China by the Belt’ in the Foreign Policy magazine, its authors have argued how Washington can beat China’s global influence campaign. For that purpose, the policymakers in Washington have created International Development Finance Corporation (IDFC) to counterbalance China’s One Belt One Road (OBOR), the Chinese ambitious plan to create markets for Chinese goods, services and labour along with its geopolitical footprint. However, the size of the funds allocated to the IDFC is a mere $60 billion, a dwarf figure against China’s one trillion dollars allotted to the OBOR. To make up for the smaller size, the authors recommend what some economists call a ‘Judo Strategy’ in which smaller firms use the bigger size of larger firms against them to win an asymmetric competition. They suggest that the Chinese juggernaut could be tripped over, kind of like the way Hannibal’s huge army was worn out by a war of indirection and attrition. The authors suggest three approaches in this Judo strategy. First, the US should highlight how China’s lending practices violate international norms set by multilateral institutions like the IMF, the World Bank and the Organisation for Economic Cooperation and Development; second, it should publicise the corruption in OBOR projects; and third, it should help countries that find themselves trapped in Chinese debt.

Though the piece was published in the spring issue of the magazine recently, we see almost everything recommended in it already happening in Pakistan. Though a conspiratorial mind would be drawn to conclude someone is pulling the strings, it is pertinent to say that like water finds its course, a series of events happen on their own giving the appearance of a conspiracy.

The IMF started warning in its reports back in 2016 about how Pakistan would have to manage its CPEC-related outflows. As the economic crisis unfolded over the following years and we began negotiating with the IMF, the multilateral lending organisation was adamant in its demands to review the CPEC details. That is not something unusual; a lender needs to see your debt profile, to see your creditworthiness. It kept showing its concerns as to whether the CPEC-related debt was sustainable. When it was shown to the IMF that the equity portion far exceeded the debt in the deals, it still showed apprehensions about the rate of returns on investments which far exceeded the standard rates. These lending institutions played their role in highlighting that China is the world’s loan shark. However, ground realities did not go in favour of China either.

The second approach under this Judo Strategy mentioned by the authors is of divulging the corruption in the OBOR projects to make the investments unpopular in the country. Corruption is highly unpopular among citizens in the Third World countries where perception of the rich elite corrupting its way to amass riches abounds. That is a perfect strategy to muddy the waters and sabotage the whole project. Though there were allegations of corruption in CPEC projects, they did not gather much steam. However, if the basic reason for revealing corruption surrounding OBOR projects is to make them unpopular in Pakistan, then CPEC has the potential of becoming unpopular owing to other issues as well. One is the idea that fruits of the investments would favour already developed parts of the country. Respective governments and policymakers in Pakistan have tried to address this problem and somehow managed to satisfy pessimists. However, much more is needed to be done in this regard. A Chinese engineer throwing a worker into a furnace and rackets of Chinese men trafficking Pakistani women would not make the Chinese investments popular in the country.

The third tactic suggested by the authors was helping the countries which find themselves ensnared in the so-called Chinese debt trap through multilateral institutions. Pakistan went first to China to avoid going to the IMF for its external account payments. It received help from it but that wasn’t enough to bolster our foreign reserves. Then Pakistan had to go knocking the doors of the IMF.

We can examine if the Judo strategy is already working. We see many quarters saying that the control of our central bank and the finance ministry has gone to the IMF, that too with only a support of six billion dollars. Nobody said that with the investment of 60 billion dollars, we had ceded control of our important financial governance institutions to China. The IMF bailout exudes confidence in the international financial markets for further financing needs of the country. That shows how the norms of international commercial lenders revolve around the IMF assurance and they look at the Chinese investments with suspicion. China has got to fix that problem if it wants to change its image from an international loan shark to a country interested in globalisation, with Chinese characteristics.

China is an emerging power and it is natural for the lone ‘Superpower’ to resist the forthcoming takeover. We see this in the recent trade and tech-economic war the two countries have been engaged in. Geopolitical influence over Pakistan has become even more important for the US in the backdrop of the Afghan exit strategy. If China wants to retain its influence and the OBOR to succeed, it has to be much more generous in renegotiating its deals giving its borrower the fiscal space to not spiral down in economic crises. It has to be much more transparent in reassuring the local populace of a win-win situation. Further, social issues and sensitivities too need to kept in consideration. For Judo or any other strategy to be successful, exchange of benefits on more equal terms is needed between China and other OBOR member countries.

Published in The Express Tribune, June 28^th, 2019.

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